For-Profit College Costs Surpass Nonprofit Peers in U.S. Study

May 26 (Bloomberg) -- The average cost of attending a four-year for-profit college surpassed expenses at both U.S. state
and private nonprofit universities, a government report found.

Full-time students paid an average of $30,900 annually at
the for-profit schools in the 2007-2008 academic year, almost
double the $15,600 average paid at public universities,
according to U.S. Education Department data released today. The
average cost of attending a private nonprofit college was
$26,600, the study said.

Congress has been investigating costs and students’ debt
burdens at for-profit colleges, which get as much as 90 percent
of their revenue from federal student grants and loans. Default
rates among former students at for-profit colleges jumped to
15.2 percent, the biggest rise in the higher-education field,
the Education Department said May 20 in a separate report.

“The career-college industry readily admits that they cost
students more than some alternatives,” said Pauline Abernathy,
who oversees policy and advocacy for the Institute for College
Access and Success, in a telephone interview. “The question,
particularly for the lower-income students these colleges
target, is whether it’s worth the higher cost.”

The Bloomberg U.S. For-Profit College Index of 13 companies
fell less than 1 percent yesterday. Apollo Group Inc., operator
of the University of Phoenix and the biggest U.S. for-profit
college, declined $1.05, or 2.6 percent, to $39.92 in Nasdaq
Stock Market trading.

‘Traditional’ Undergraduates

The study’s cost estimates, which used constant 2009-2010
dollars, included living expenses such as housing and food, for
students at all colleges. It looked only at students who were
still considered dependent on their parents, to get a picture of
the costs paid by “traditional” undergraduates, said Tom Snyder,
an Education Department statistician.

The report looked at a small sample of the students at for-profit colleges, where only about one-quarter are dependents,
said Harris Miller, president of the Washington-based
Association of Private Sector Colleges & Universities, an
industry group. Other data show that for-profit colleges cost
less than private nonprofit institutions because many students
study at home through online courses, keeping living expenses
lower, Miller said.

Four-year, for-profit colleges also spent less than
nonprofits on instruction, averaging expenditures of $2,659 per
student in 2008-2009, according to the study. Private, four-year
nonprofit colleges spent almost six times as much -- $15,289 per
student -- in that same period, and public institutions spent an
average of $9,418.

Less Expensive Faculty

Most for-profit colleges use lower-paid faculty, providing
students access to teachers at less cost, Miller said.

“They get a better student-to-faculty ratio than you would
get when you have a high-priced professor in a large lecture,”
Miller said.

The study looked at the average cost of attending college
after subtracting scholarships that students don’t have to
repay, including U.S. Pell Grants. About one in four students at
a U.S. for-profit college receives a Pell Grant, which provides
as much as $5,550 annually for poor students.

The costs for students at private nonprofit colleges were
lower, in part, because they received an average of $10,900 in
annual scholarships, while for-profit college students got an
average of $2,600 in grants. Public university students received
an average of $3,700 in such assistance.

Pending Regulations

Average costs after grants at four-year, for-profit
colleges rose 37 percent from $22,500 in the 2003-2004 academic
year, the study said. During the same period, costs at public
universities rose 8.3 percent from an average of $14,400, and by
8.6 percent from an average of $24,500 at private nonprofit
institutions.

The Education Department is preparing to release
regulations that may further restrict access to financial aid at
for-profit colleges. California lawmakers passed a measure that
will restrict students’ ability to get state grants to cover
costs of for-profit colleges.

The figures were included in a report, called The Condition
of Education, which the Education Department provides for
Congress annually. The figures on average college costs are
collected every four years, said Snyder, the department
statistician.